Which Savings Option Is Right For You?
Now that Deseret Mutual is able to offer a Roth 401(k) option along with the before-tax 401(k) and the after tax option, the challenge is to make a selection that best fits your personal financial strategy. A brief discussion of the Thrift plan options may help the decision-making process.
The basic difference in the Thrift Plan options is in the taxes! The table below compares the options and the tax treatments of each one:
|Before-tax 401(k)||After-tax||After-tax Roth 401(k)|
|Employee Contributions||Taxed when withdrawn||Taxed before contribution||Taxed before contribution|
|Employee Contribution Earnings||Taxed when withdrawn||Taxed when withdrawn||Tax free - Restrictions apply|
|Employer Match||Taxed when withdrawn||Taxed when withdrawn||Taxed when withdrawn|
|Employer Match Earnings||Taxed when withdrawn||Taxed when withdrawn||Taxed when withdrawn|
Before-Tax 401(k): Your taxes are deferred until you take your money out of the plan. This option may be good for high wage earners with fewer tax deductions and/or credits, or for those who are close to retirement and have fewer years to invest.
After-Tax: You pay taxes now, before you contribute, but your earnings are taxed when you withdraw them. This option may be good for those who have reached their contribution limits before the end of the year using the Before-Tax and/or the Roth 401(k) options and still want to receive the matching contributions from the University.
After-Tax Roth 401(k): You pay taxes now, before you contribute. If you meet the qualified distribution requirements (your account has been open for at least five years and you are 59 1/2 or older when you withdraw), your investment earnings are tax free! This option may be good for younger savers and for those in lower income tax brackets. It may also be advantageous for higher wage earners in some circumstances.
Determining the right option for you may take some careful consideration. However, participating in any of the options available is a smart choice. If we can be of assistance to you, please contact us at (801)422-4716.